Reputed NBFIs also slipping into trouble

The non-bank financial institution (NBFIs) sector has been facing an image crisis due to the ailing situation of four to five companies for several years, but the situation of the reputed companies is also becoming worse day by day.

The non-performing loans (NPLs) of these reputed financial institutions increased between 20 per cent and 424 per cent last year due to their lax monitoring system and loan irregularities.

The bad loans in the NBFI sector stood at Tk 16,821 crore at the end of December last year, up from Tk 13,017 crore a year ago, as per the latest data from the Bangladesh Bank.

The country has now 35 NBFIs. Four to five companies are in dire straits while the situation of the reputed ones is also deteriorating now.

Now the overall NBFI sector is facing various challenges, said Md Golam Sarwar Bhuiyan, chairman of the Bangladesh Leasing and Finance Companies Association (BLFCA).

He said default loans have increased in almost all NBFIs due to the withdrawal of the moratorium facility, which the central bank introduced during the coronavirus pandemic.

Sarwar, also the managing director and chief executive officer of Industrial and Infrastructure Development Finance Company (IIDFC), told The Business Post bad loans will increase further in the upcoming days because loan recovery is not satisfactory now. “At a time when the sector is facing an image crisis due to four or five companies, the impact has also fallen on almost all the rest.”

The bad loans of GSP Finance rose by 424 per cent to Tk 320 crore at the end of last year. Default loans of LankaBangla Finance stood at Tk 441 crore, up from Tk 362 crore a year ago.

Moreover, during this period, Hajj Finance’s bad loans rose to Tk 185 crore from only Tk 57 crore; IDLC’s to Tk 380 crore from Tk 272 crore; IPDC’s to Tk 282 crore from Tk 183 crore, National Finance’s to Tk 225 crore from Tk 109crore, and Phoenix Finance’s to Tk 607 crore from Tk 394 crore, as per the central bank data.

International Leasing had the highest bad loans, which stood at Tk 3,600 crore at the end of December last year.

A senior official of the central bank said a number of NBFIs had hidden their NPLs from their balance sheets, which came to light during the banking regulator’s inspection.

As a result, the bad loans increased last year, he added.

Bad loans in the NBFI sector continued to accumulate due to huge irregularities and scams, as per him. “Only five to six NBFIs out of 35 are doing well.”

A central bank inspection team in 2020 found huge irregularities and scams in 10 NBFIs, including People’s Leasing, International Leasing, Premier Leasing, Uttara Finance, and First Finance.

Former governor of the Bangladesh Bank Salehuddin Ahmed told The Business Post big industry owners had mostly borrowed from the ailing NBFIs.

Some more rules and regulations need to be introduced in this sector to control the situation and establish good governance, he said.

He suggested intensifying the central bank’s monitoring of NBFIs to ensure good governance in the sector.